Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)

1. What is “Assurance”? Explain the value we obtain from lay man’s assurance.
Assurance is closely related to reliability and trustworthiness. Hence it can be
seen as the weight of a person’s word about anything, may it be an idea, judgment,
and/or opinion. But what do we gain from “Assurance”? In some situations we gain
peace of mind, confidence, or both; but the acquisition of information we could rely on or
put into consideration is always certain. Thus, assurances can serve as factors in our
decision-making and anchors for us to trust our judgments.
2. What is an Assurance Engagement?
As stated by Cabrera and Cabrera (2020), an assurance engagement is where a
practitioner offers his or her expertise to validate a subject matter under a certain
responsible party in a way that the results and conclusion of the practitioner’s validation
will improve the intended user’s confidence about the subject matter and the criteria
upheld upon validating it (p.153) . To simplify its definition, an assurance engagement is
a consultation given by an expert in the said field of the subject matter to a client who is
interested in the subject matter with the intention of the client obtaining the expert’s
reliable conclusion which boosts the client’s degree of confidence and uses the
acquired information based on his or her needs.
3. Why do we conduct Assurance Engagements? Why is it an essential function
in the practice of our profession?
Assurance Engagement is where a subject matter is examined and validated
through suitable criteria by a practitioner who later presents an opinion based on his
examination (Accounting Hub, 2022). Enhancing, providing assurance, reducing
engagement risks, and expressing an opinion is usually the objective of assurance
engagement as stated by the Accounting hub (2022), hence every assurance
engagement’s objective varies on a per case basis which enables us to cater to our
client's needs accurately. Our profession, be it accounting in general or auditing, offer
our clients systems and services that are necessary for their entrepreneurial, legal,
personal, and professional endeavors. Hence, assurance engagement is one of the
many essential services that we offer as it is a service that provides clients with a
professional opinion or point of view on their current endeavors. By providing such an
opinion we ensure that our client does not miss critical information that may drastically
change the state of the subject matter with respect to its suitable criterion, which in turn
supports our clients' decision-making and avoids possible mistakes and probable
misinterpretations.

4. Differentiate the following:

1. Reasonable Assurance Engagement and Limited Assurance
Engagement
Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)

Both Reasonable Assurance Engagement and Limited Assurance Engagement

aim to reduce assurance engagement risks to an acceptable low level, both of these
engagements also aim to form or generate expressions from the conclusion of the
practitioner (Cabrera and Cabrera, 2020). These two differ in the factor of what type of
expression they extract from the practitioner’s conclusion and the level of risks they
deem acceptable. Reasonable Assurance Engagement sheds a positive light to the
practitioner’s conclusion while a negative expression is drawn by a Limited Assurance
Engagement. As stated earlier, both aim to reduce risk to low levels that are enough to
be accepted, but Limited Assurance Engagement tends to accept greater risks than
Reasonable Assurance Engagement (p. 154).
2. Assertion-based Engagements and Direct Reporting Engagements
According to Cabrera and Cabrera (2020), an Assertion-based engagement is an
engagement where the responsible party is the one to provide an evaluation regarding
the subject matter at hand in a form of assertion, which then will be made available to
the intended users. As for Direct Reporting Engagements, these are engagements
where a practitioner is the one who would conduct the actual evaluation of the subject
matter or the one who would seek representation from the responsible party who
already accomplished the evaluation but hasn't made it yet available to the intended
user, the practitioner then provides a written assurance report to the intended user (p.
155). Hence, the key difference between the two is in what form the assurance is
delivered and who delivers the assurance. For example, in assertion-based
engagements the responsible party is to provide an independent assessment form of
assertion to intended users, the said assessment is initiated by the party itself by hiring
a practitioner. While in direct reporting engagement, the subject matter under the
jurisdiction of the responsible party or the evaluation conducted by the responsible party
with regards to the subject matter is to be separately evaluated or reevaluated by a
practitioner independent from the party, he or she then composes an assurance report
which is to be provided to his client who is the intended user.

5. What are the Elements of an Assurance Engagement? Give and explanation

and include why such element is necessary in the completion of such
engagement.
An Assurance Engagement has five elements, namely; A three-party
relationship, An appropriate subject matter, Suitable criteria, Sufficiency and
Appropriateness of evidence, and A written Assurance Report. A three-party
relationship involves a practitioner, a responsible party, and intended users; the
practitioner is the one to conduct the evaluation of the subject matter at hand, the
responsible party is the one who has jurisdiction over the subject matter and information
regarding it, and intended users are the persons whom the practitioner cater to, these
are the people who sought assurance from the practitioners (Cabrera and Cabrera,
2020). This relationship is essential for the completion of engagements as the
relationship of these parties themselves is where the intention of engagements
Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)

originates, it is where the questions “who needs what?” and “who needs whom?” are
answered.
Moving forward, An appropriate subject matter is essential simply because it is
where the interest of the party revolves. The practitioner is to evaluate if the responsible
subject matter is up to par with the suitable criteria to satisfy the need for information of
the intended user. Hence, it is only imperative that the element that bears this
characteristic is to be appropriate. As per Cabrera and Cabrera (2020), subject matters
come in different forms such as Financial performance or conditions, Non-financial
performance or conditions, Physical characteristics, Systems and Processes, and
Behavior. Cabrera and Cabrera (2020) further explained that these subject matters
have different characteristics in terms of their nature, such as if they are quantitative or
qualitative, historical or prospective, objective or subjective, and if one covers a period
or just a certain point in time. All of which serve as factors to the quantifiability of such
subject matter. But to consider a subject matter appropriate, it needs to be identifiable at
a level where it passes evaluations that uphold the suitable criteria in a consistent
manner, and the information surrounding it should be able to provide reliable evidence
that is to be used as supporting information to an assurance report conclusion (p. 157-
158).
Suitable criteria, on the other hand, are as important as any of the other 4
components as it serves as the instrument that gauges and measures the subject
matter or to simply put it, sets the standards for the subject matter at hand. Criteria may
be formal and informal but both of which must possess the following attributes:
Completeness, Reliability, Relevance, Understandability, and Neutrality (Cabrera and
Cabrera, 2020). All of these attributes must be present in order to preserve the integrity
of the criteria to be used and the said criteria must also be made available to the
intended users for them to gain a deeper understanding of how the subject matter was
appraised. In doing so, the criteria can be disseminated by means of any of the
following: “Publicly, Through inclusion in a clear manner in the presentation of the
subject matter information, Through inclusion in a clear manner in the assurance report,
By general understanding, for example, the criterion for measuring time in hours and
minutes.” (p. 158-159).

As for Sufficiency and Appropriateness of evidence, it is an element that also

bears a heavyweight in the engagement as this element is similar to the Suitable
Criteria as they both factor in the integrity of the subject matter and the whole
engagement itself (Cabrera and Cabrera, 2020). The name of the element itself
suggests a quantitative and qualitative approach to dealing with evidence supporting the
subject matter, therefore evidence must attain a certain amount while maintaining
reliability and relevance to the case at hand (p. 159-164).
Finally, A written Assurance Report as mentioned by Cabrera and Cabrera
(2020), is a report provided by the practitioner which concludes his or her opinion about
the subject matter. This is the outcome of the whole process and what was pursued by
Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)

the respective parties from the beginning. The conclusion is to be received by the
intended user who may utilize it in any manner that he deems appropriate.

6. What are Non-assurance services? Give examples and explain.

Non-assurance services are services offered by professional accountants or
auditors in a manner where they give engagements without assurance, experts process
and prepare financial reports for their clients and leave the final judgment to the
intended user of the prepared information. Some examples of these are accountants
applying their expertise in creating plain financial reports that are easier to understand
and come with fewer details without any assurance or claims, this would be under the
compilation engagement category. For agreed-upon procedures, it is fairly similar to
compilation engagement except that in this service the skill of an auditor is highlighted
as he or she delivers factual financial findings from the information presented to him.
The other three examples are Tax Services, Management Consulting/Advisory
Services, and Accounting and Data Processing or Information Technology System
Services (Cabrera and Cabrera, 2020) (p. 168-169).

References:
Accounting Hub, 2022. Objectives of an Assurance Engagement. [online] Accounting
Hub. Available at: <https://www.accountinghub-online.com/objectives-of-an-assurance-
engagement/> [Accessed 23 July 2022].

Cabrera, M. E. B. and Cabrera, G. A. B., 2020. Principles of Auditing and Assurance

Services. Sampaloc, Manila: GIC Enterprises & Co., Inc., pp.153-169.
Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)
Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)
Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)
Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)
Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)
Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)
Salac, Ramon Kristian A-331 Internal Auditing (Auditing and Assurance Principles)